FILE PHOTO: An employee counts U.S. dollar bills at a money exchange in central Cairo, Egypt, March 20, 2019. REUTERS/Mohamed Abd El Ghany
Pakistan has repaid a $1 billion Chinese commercial loan, which lowered the country’s foreign exchange reserves to a six-month low of $10.6 billion.
The Industrial and Commercial Bank of China (ICBC) extended the loan two years ago at a floating interest rate of approximately 7.5 percent. The repayment was made in two equal tranches in March.
Another $300 million tranche from ICBC will mature by mid-April, with Pakistan set to retire it as well.
Following the second $500 million repayment in March, the State Bank of Pakistan’s (SBP) reserves fell to $10.6 billion. The central bank had covered the first $500 million repayment through market purchases and foreign inflows.
Pakistan remains heavily reliant on China, which continues to roll over $4 billion in cash deposits, $6.5 billion in commercial loans, and $4.3 billion in trade financing.
From April to June, $2.7 billion in Chinese commercial loans will mature, including a $2.1 billion syndicated loan and a $300 million facility from Bank of China.
Pakistan remains dependent on fresh loans and debt rollovers. The country has also requested China to reschedule $3.4 billion in debt for two years to bridge a foreign funding gap identified by the International Monetary Fund (IMF).
Meanwhile, Pakistan and the IMF have reached a staff-level agreement on the first review of the Extended Fund Facility. The IMF has also insisted on keeping property transaction taxes intact as part of its policy to shift investments from speculative to productive sectors.